Should You Dump VSE Corp. (VSE) on Dismal Q3?

Zacks Investment Research downgraded VSE Corporation VSEC to a Zacks Rank #5 (Strong Sell) on Nov 19.

Why the Downgrade?

VSE Corp.has witnessed sharp downward estimate revisions after reporting disappointing third-quarter 2014 results on Oct 30. This federal services company also posted weak year-over-year earnings and revenue comparisons. Further, earnings significantly lagged the Zacks Consensus Estimate by 36.3%.

Profits during the quarter were primarily impacted by the U.S. Army Reserve program which in turn was affected by Army budget reductions. The Army Reserve program for the first nine months of 2014 generated approximately $39.6 million in revenue compared with around $45.4 million in the first nine months of 2013.

Further, the company is realigning which resulted in severance costs of roughly $400 thousand in the third quarter.  

The Zacks Consensus Estimate for the fourth quarter of fiscal 2014, full-year 2014 and 2015 were down significantly. For the fourth quarter, estimates moved south by 10.9% to $1.06 over the last 30 days. Similarly, for fiscal 2014, estimates contracted 11.7% to $4.06 over the same time frame. For 2015 also, estimates were revised downward over the last 30 days, which sank the Zacks Consensus Estimate by 9.1% to $4.20 per share.

Other Stocks to Consider

Not all engineering and diversified stocks are performing as poorly as VSE Corp. Stocks such as AECOM Technology Corp. ACM, Willdan Group Inc. WLDN and Carlisle Companies Inc. CSL are performing well and are worth considering. All three carry a Zacks Rank #1 (Strong Buy).